Wall Street pushes for GM to spin off its electric vehicle business

GM CEO and chairman Mary Barra speaks during an "EV Day" on March 4, 2020 at the company's tech and design campus in Warren, Mich., a suburb of Detroit

GM

Pressure is mounting from Wall Street for General Motors to spin off its electric vehicle business to better position the operations against Tesla and a fleet of expected startup companies.

The new company would likely be valued at a minimum of $15 billion to $20 billion, and could potentially be worth up to $100 billion, according to Deutsche Bank analyst Emmanuel Rosner. GM's total market cap currently stands at $43 billion. 

"Spinning it off essentially creates value, it could unlock a massive amount of value, actually," he said Monday during CNBC's "Power Lunch." The less GM retains of the electric vehicle operations, "the better it would be for value creation," according to Rosner.

GM shares closed Monday up 7.7% after Deutsche Bank upgraded its short-term rating on GM to a buy and were little changed in midday trading Tuesday.

Speculation about a potential spinoff of its electric vehicle operations has been growing since the automaker's second quarter earnings call on July 29.

During the call, Rosner recommended the automaker separate the operations, "forcing the market to recognize its advanced technology." Morgan Stanley analyst Adam Jonas also suggested changing GM's name to better align with its emerging technologies. He suggested "Ultium," after GM's next-generation vehicle batteries.

GM CEO and Chairman Mary Barra, who would historically defends keeping the company intact, didn't nix either idea. She said the input was appreciated and that GM, which was established in 1908, would make any changes necessary to drive shareholder value.

"We are evaluating and always evaluate many different scenarios, so I don't have anything further to say other than, we are open to looking at and evaluate anything that we think is going to drive long-term shareholder value," she said. "So, I would say nothing is off the table."

Morgan Stanley values GM's Ultium business at about $20 billion, according to an analyst note Tuesday from Jonas. He raised Morgan Stanley's price target for the automaker from $43 to $46 on the potential for GM's electric vehicle business, particularly Ultium.

"GM is taking its in-house battery capability to the next level, supporting internal & 3rd party supply at scale," he wrote. Jonas also supports a spinning off of the operations, citing "the autonomy between the two units can liberate each other of various impediments to efficient capital allocation and talent development."

Gordon Haskett Research Advisors' Don Bilson questioned the validity of such speculation in an investor note Tuesday. He said there's no evidence of any activist investor pushing for such action and questioned the timing in relation to the announced departure of GM CFO Dhivya Suryadevara.

"If GM were planning to spin off its EV business anytime soon and create a standalone green car company to compete against Tesla, wouldn't Suryadevara want to be a part of that? And just as importantly, does her departure signal that this project is stuck in the slow lane?" he wrote.

There was similar industry speculation of a spinoff in recent years regarding Cruise, GM's majority-owned autonomous vehicle subsidiary. The company has said it believes keeping the operations under one umbrella (with SoftBank Vision Fund and Honda Motor as equity investors) is the best way to fully unlock their value. 

Having said that, Bilson also noted Tesla's "daily surges have become impossible to ignore and Barra should know that sooner rather than later an activist will come knocking if sell-siders are arguing her stock could double or triple."

The speculation regarding a spin off comes as GM is scheduled to host a virtual "Tech Day" on Wednesday for its China operations. The event is expected to be similar to an "EV Day" the company held in March for U.S. media and Wall Street analysts. The event detailed its electric vehicle operations, including the Ultium technologies.

GM, despite the pandemic, has reconfirmed plans to invest $20 billion from 2020 through 2025 in autonomous and electric vehicles, including at least 20 new electric vehicles globally by 2023.

A substantial portion of the new vehicles are expected to be for China, the world's largest electric vehicle market.

– CNBC's Michael Bloom contributed to this report. 

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